How informative are insider trades and analyst recommendations?

Jim Hsieh, Lilian Ng and Qinghai Wang

Journal of Banking & Finance, 2023, vol. 149, issue C

Abstract: This study evaluates the interactions between, and informativeness of, insider trading and analyst recommendations. We find that analyst recommendations significantly affect subsequent insider trading, but not vice versa. Surprisingly, in aggregate, insiders buy more shares following analyst downgrades and sell more shares following upgrades. This pattern persists even after controlling for analysts’ momentum and insiders’ contrarian trading preferences. Analysts, in contrast, do not systematically take into account insider trading when revising their recommendations. More importantly, we show that these two information signals complement each other although insider buying could be a singularly strong signal that substitutes the informativeness of analyst recommendations under certain circumstances. Overall, our findings highlight the important dynamics and financial market consequences between the two crucial groups of information providers.

JEL-codes: G11 G14 G29 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:149:y:2023:i:c:s0378426623000237

DOI: 10.1016/j.jbankfin.2023.106787

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